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Ash, Solicitor

Category: Law

Satisfied Customers: 10916

Experience: Solicitor with 5+ years experience

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In addition to my main residence, I have a house which I rent

Resolved Question:

In addition to my main residence, I have a house which I rent out. There is a mortgage of about £70,000 outstanding on my main residence but the rental property is mortgage free. If I transfer the mortgage from my main residence to the rental property can I subsequently reduce my capital gains burden (by 18% of £70,000) when I sell the rental property?

I assume you mean you will re-mortgage the rent free property and pay off the main residence, is that right?

Customer:

I was thinking that the mortgage company might be able to 'switch' from one property to another, but I suppose that is a question of paying off one and re-mortgaging the other. There is a redemption admin charge of £295.00 on the mortgage and now that I have checked there is only £46,000 to pay off, but even so that could result (in theory) of a capital gain reduction of £8,280 (less legal fees for remortgage - couldn't it?

Alex Watts :What is the purpose of a remortgage just to avoid CGT?

Customer:

yes, I am assuming that a mortgage is taken into account when calculating CGT - thus a mortgage on the house I want to sell (i.e. not my main residence) would reduce the amount of the capital gain on that property and hence reduce the amount of CGT payable.

Alex Watts :

Its bad news then I am afraid.

Alex Watts :

If you needed to remortgage because you wanted an extension to improve the property or buy a new roof that would be ok

Alex Watts :

But to simply remortgage to pay off your main home mortgage to avoid CGT would be fraud

Alex Watts :

HMRC are not stupid, they know people want to minimise tax.

Alex Watts :

What would have been prudent is to not pay off the rental home mortgage and pay off your primary home

Alex Watts :

But sadly you are stuck with what you have

Alex Watts :

So sadly you can't do this as you would still be liable

Alex Watts :

I am sorry if this is not the answer you want and certainly not the one I want to give you, but I have a duty to be honest

Alex Watts :

Can I clarify anything for you about this today please?

Customer:

Yes, sorry, the more I think about it the sillier the idea seems - a friend suggested that a mortgage was deductable from Capital Gains, but if you sold a property whilst the mortgage still totalled more than the increase in value, then you would never pay CGT. Am I right in thinking that a mortgage NEVER comes into the CGT calculation- its paid off upon sale of the property and what is left is the capital gain?

Alex Watts :

Yes a mortgage NEVER comes into calculation UNTIL it is sold

Alex Watts :

So for example you buy a house for £100,000 with a £70,000 mortgage.

Alex Watts :

You sell that house for £150,000 and the mortgage then is £60,000

Alex Watts :

Your gain is £150,000 less £100,000 = £50,000

Alex Watts :

The CGT ONLY is applicable for INTEREST payments on the mortgage

Alex Watts :

Does that clarifty?

Alex Watts :

* clarify? *

Customer:

Yes, thank you for your time - it was me being stupid and side-tracked by wishful thinking!

Customer:

Sorry again, but how does the interest paid on a mortgage affect the CGT? Do I add up all the interest paid over the years and deduct that from the capital gain?

Alex Watts :No, that comes off your annual income when you declare it on the tax return

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